Colorado Used Car Legislation May End Pre-Owned Vehicle Sales Tax

In a recently proposed piece of used car legislation, State Senate Bill 18-077, Colorado is considering giving used car buyers, including buy here pay here customers, a break on sales taxes. If the bill currently under review, which has already passed the State Finance Committee with a two-thirds majority, becomes state law, used car buyers in Colorado will enjoy an exemption from state sales tax. This piece of used car legislation may have some effects on the buy here pay here industry.

Larry Crowder, the Colorado State Senator who proposed the bill, said he believes this measure will benefit the state’s citizens for several reasons. Owning a car is necessary in much of the US, so much so purchasing one is perhaps the largest investment many average Americans make, but increasing vehicle costs mean that buying even a used car is becoming impossible for some middle-class families. (See our article, Millions of Americans Can’t Make Auto Loan Payments.) Because used cars, by definition, have more than one owner, the sales tax on them has already been paid once, and there are other sources of revenue on pre-owned vehicles for the state. Taking all of this into consideration, Crowder is proposing that Colorado make pre-owned vehicles more affordable by removing the sales tax on them.

That is great news for pre-owned and buy here pay here customers, but what does this proposed used car legislation mean for dealerships?

The first, most obvious answer is that this is likely to be good for the used car business in Colorado. Customers who had been debating between purchasing a new or used car may well be convinced that the extra savings make a used car the way to go. Also, customers who were on the edge of being able to afford a used car—a demographic which likely includes many buy here pay here customers—may now find a pre-owned vehicle within their reach.

If you own a dealership in a neighboring state and worry that local customers may travel to find a better deal, relax. According to DMV.org, regardless of where a vehicle is purchased, state citizens must pay their state’s sales taxes. Used car sales taxes are leveed by the state the pre-owned vehicle is registered in, not the one it is purchased in.

What this may affect in other states is used car legislation itself. If the Colorado Legislature passes this bill, and it successfully places pre-owned vehicle ownership within reach of more citizens, thus strengthening the used car market and the state economy as a whole, other states will take notice. It is likely that similar bills will be proposed and eventually passed in other state legislatures.

For now, however, used car and buy here pay here dealerships in states other than Colorado can only watch and wait to see what the future brings. If the bill passes, used car and buy here pay here dealerships in Colorado will soon enjoy an increase in business, which may be one of the few pieces of used car legislation in which both customers and dealerships win.

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